India Market Watch: Demonetization Boosts Digital Payments Sector and Bengaluru, Mumbai Top Asian Real Estate Markets - India Briefing News

India Market Watch: Demonetization Boosts Digital Payments Sector and Bengaluru, Mumbai Top Asian Real Estate Markets

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Demonetization a Huge Boon for Digital Payments Market

The government’s shocking announcement on November 8 demonetizing the high-value currencies of 500 and 1000 that account for 86 percent of India’s cash in circulation, has indirectly boosted the country’s emerging digital payments market. In fact, among the reasons justifying the demonetization move, which was principally to weed out black money and destroy the parallel shadow market, is now a transition sought towards a cashless economy. This policy direction by the government highlights the tremendous growth possibilities for the digital payments sector that is only just started to establish itself. Demonetization has also in a way dismantled some of the traditional barriers preventing Indians from adopting digital payment solutions such as the habit of using cash, complexity and unfamiliarity of digital payment systems, lack of compelling value proposition, and anxiety over fraud and network security. Some of the players looking to benefit include Paytm, MobiKwik, FreeCharge, ItzCash, and Payworld, among others. Further, the digital and paperless Airtel Payments Bank announced that it opened savings accounts for over 10,000 customers within two days of going live with a pilot project in Rajasthan, last week.

India’s mobile wallet industry is touted to grow multifold from US$ 22.41 million in 2015-2016 to US$ 4.37 billion in 2022. This would entail a corresponding jump in the value of mobile wallet transactions from US$ 3 billion to US$ 800.35 billion during the same period, according to a July forecast by Assocham-RNCOS titled “Indian M-wallet Market: Forecast 2022.” The values behind the study will inevitably get impacted by the sudden usage of digital solutions forced upon customers in the current period – real jumps towards permanent adoption of cashless solutions will, however, require more assurance from firms and the banking sector. In this context, the temporary rollback of Paytm’s point-of-sale (PoS) feature on its mobile app within 24 hours of its launch due to security concerns last week is worrying.

Nevertheless, the current payments landscape presents a huge opportunity for digital companies. Additionally, the demonetization move has not only forced individual consumers to adopt alternative payment mechanisms but also large sections of the unorganized sector who have been badly hit by the ongoing cash crunch. The unorganized sector forms the bulk of the Indian economy and includes grocery stores, small traders and merchants, sweetmeat sellers, artisans and potters etc. Another target of digital payments companies is rural India – home to 870 million people – where online penetration is gradually progressing. A recent report by the Boston Consulting Group titled “Rising Connected Consumer in Rural India” predicts that rural users will increase from about 120 million in 2015 to almost 315 million in 2020, presenting enticing opportunities for marketers and digital wallet firms.

Professional Service_CB icons_2015RELATED: Pre-Investment Services from Dezan Shira & Associates
Bengaluru, Mumbai are Top Real Estate Investment Destinations in Asia

India is among the fastest growing economies in the world, and offers some of Asia’s best real estate investments, according to a survey jointly published by the Urban Land Institute and PricewaterhouseCoopers. The ‘Emerging Trends in Real Estate Asia Pacific 2017’ survey shows Bengaluru and Mumbai as the top two real estate investment markets out of 22 identified in Asia. This is remarkable progress given that the two cities previously ranked 12th and 13th, respectively, in 2015 and were close to the bottom of the table in 2014. This year’s investment prospects survey reflects the recent burst in growth of Indian real estate private equity investment, which increased by 55 percent to US$ 3.96 billion in 2015, according to brokers Cushman & Wakefield. India has become a compelling market for investors because of “high-quality assets”; commercial and residential property offering consistently high returns, a strong tenant demand, and declining financing rates. Moreover, the boom in the IT and ITeS sector (IT and BPO industry) are driving the current demand for new office space.

In comparison, Tokyo’s performance plummeted to reach the 12th position after having topped the survey last year, indicative of Japan’s stagnating economy and discontent with the Abe government’s policies. Singapore’s government is continuing its real estate curbs begun 2009 in an effort to cool the housing market, and has therefore witnessed 12 straight quarters of falling prices in the residential market. Nevertheless, India’s real estate market cannot afford to rest easy as Asian investors, led by China, are looking to diversify their property exposure outside of the region, especially into London in the wake of Brexit and New York.

Related Link Icon-IBRELATED: Latest Government Updates on Implementation of High-Value Rupee Demonetization
Festive Season Sales Drive India’s Online Retail Market

The e-commerce market in India is heavily concentrated on its discount-driven festive season sales, which is much more than when compared to the US and China. In fact, RedSeer Consulting notes that around 6.6 percent of India’s gross online retail sales in 2016 were made over just five days in October when Flipkart held its annual ‘Big Billion Days’ shopping festival and main rival, Amazon, ran its competing ‘Great Indian Festival’. The shopping festivals dug deep into their firms’ pockets with millions spent on advertising, promotional schemes, and discount offers.

On the other hand, the signature online shopping festivals in the US and China generate much less sales, indicative of their mature markets and a lack of dependence on seasonal discounts to push online goods. ‘Cyber Monday’, which is the last day of deals in the US after ‘Black Friday’ kicks-off a four day shopping weekend post-Thanksgiving, accounted for just 0.8 percent of e-commerce sales in 2015. Similarly, China’s flagship ‘Singles Day’ sales by the Alibaba Group accounted for a mere 2.4 percent of the country’s online retail market.

Thus, India’s overdependence on discount-heavy festive season sales points to the larger challenges of its nascent e-commerce market, even as millions of new users drive higher sales during these specific periods. Foremost among these challenges remains the difficulty of engendering customer loyalty and favorably shaping shopping habits towards respective online platforms. Consequently, it is expected that local e-commerce companies will struggle to break even for a long time in India, as their costly strategies work to entice customers while fending off stiff competition from rival firms, all of whom are looking to capture the maximum online retail space.  


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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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